Is EPF Withdrawal Taxable?

For every employee tax on EPF is one of the major concerns. Many believe EPF withdrawal are not taxable, but that cannot be considered true completely. Withdrawal from EPF can be  very much taxable. Infact, TDS is also deducted in some cases. Let’s take a close look at the details.

If an employee withdraws the EPF balance before completing 5 yrs in professional service, then EPF balance is taxable.

In order to calculating the period of 5 yrs of service, it is not compulsory that service should be continued with the same employer all throughout the five years. He may have worked in different organisations in different roles. But as and when a person switches the job, he must get the PF balance transferred from previous employer’s account to the new company PF Account.

Cases when TDS is deducted on EPF withdrawal

TDS on EPF will be deducted, in case withdrawal is greater than Rs 50,000. This is applicable from June 2016. Previously this limit was Rs 30,000.

Rate of TDS – TDS will be deducted at 10% provided the employee has submitted his/her PAN. Otherwise TDS is deducted at the rate of 34.608% if PAN is not submitted.

However there are certain EXCEPTIONS to the deduction of TDS on EPF by EPF organisation.

1. TDS is deducted in case of transfer of PF amount from one account to another PF account
2. Also, no tax is deducted if employee withdraws the PF after completing 5 yrs of period of service.
3. TDS is not deducted, where Form 15G or Form 15H are submitted by the employee to its current employer. The purpose of these forms are to declare that the income of these people would not be taxable after receiving the payment of accumulated PF balance. Senior citizens (above 60yrs of age) submits Form 15H and Form 15G is submitted by those who are below the age of 60 yrs.

New EPF Withdrawal Rules October 2016

The government has introduced new PF withdrawal rules. Here is a detailed description of Old v/s new rules.

1. Withdrawal restrictions

Old Rule – If a person quits the job and remains unemployed for a time period of 2 months or more, then he/she can withdraw the entire EPF amount.

New Rule – A person cannot withdraw full EPF amount till the age of retirement. The PF account consists of contribution made by the employer, contribution made by employee and interest earned on employer and employee contribution. Now the contribution employer and the interest earned on it cannot be withdrawn till the age of retirement. Employee can only withdraw his contribution and interest earned on it.

Exception to new rule – The exemption is provided to female employees resigning from the services for reasons like getting married or due to child birth or pregnancy. They can withdraw the full EPF Balance without any restrictions.

2. Retirement Age

Old Rule – The retirement age  as per EPF withdrawal Rules was 55 yrs. Withdraw of the PF amount  of up to 90% of balance on attaining the age 0f 54 yrs was allowed.

New Rule – The age of retirement has been increased to 58 yrs. Person can withdraw up to 90% of PF balance on attaining the age of 57 yrs.

3. PF Membership and employment

Old Rule – Person becomes the member with the joining of a new job once you leave the job and withdraws the PF balance, membership cease to exist.

New Rule – The membership would continue as the employee would not be able to withdraw the full PF balance till the age of retirement.